KB Toys got buried, Mitt Romney got paid

One of the saddest stories of the changing Berkshire economy was the long, slow death of KB Toys — the Pittsfield toy company founded in 1922, which at its peak employed about 500 people in the city. The company finally went bell-up in 2009, after a decade of cuts and bankruptcies.

But as the New York Timesreported last weekend, it wasn’t bad news for everyone. Private equity firm Bain Capital managed to make a lot of money off the dying company, some of which was paid through a cleverly structured retirement package to former employee, Mitt Romney, who happened to be governor of Massachusetts.

There couldn’t be a more clear example of the contradictions in this man, that at a time when he should have been focused on saving jobs, he was actually personally profiting from their disappearance. From the Times:

During his political career, Mr. Romney has promoted his experience as a businessman while deflecting criticism of layoffs caused by private equity deals by noting that he left Bain in 1999. But records and interviews show that in the years since, he has benefited from at least a few Bain deals that resulted in upheaval for companies, workers and communities.

One lucrative deal for Bain involved KB Toys, a company based in Pittsfield, Mass., which one of the firm’s partnerships bought in 2000. Three years later, when Mr. Romney was the governor of Massachusetts, the company began closing stores and laying off thousands of employees.

This much has come up before. In June 2007, before his last White House run, the Times also looked into the unsavory details of how Bain makes its money:

One transaction, involving the medical diagnostics company Dade Behring, took place in 1999 as Mr. Romney was leaving the firm, and the other, involving KB Toys, occurred about two years later. Bain and its co-investors extracted special payments of over $100 million from each company, enabling Bain to make a healthy profit even before re-selling the businesses — a practice known as ‘getting back your bait.’ Lenders say Bain is one of the firms that has taken the most in such payments, which companies usually make by taking on additional debt.

Both Dade Behring and KB Toys soon suffered dips in their business. Unable to meet the burden of their debts, each filed for bankruptcy and laid off thousands of workers. Bain Capital spokesmen have said the company did nothing improper.

Mr. Romney, who remains an investor in Bain Capital said he had not been involved in those decisions but acknowledged that such payments became part of the buyout business ”very early on.”

”It is one thing that if I had a chance to go back I would be more sensitive to,” Mr. Romney said. ”It is always a balance. Great care has got to be taken not to take a dividend or a distribution from a company that puts that company at risk.” He added that taking a big payment from a company that later failed ”would make me sick, sick at heart.”

Now that four and a half years have passed, he’s probably had more than enough time to change his mind about that “sick at heart” business. And he needed that money, obviously, to continue his second career convincing us he is a leader and a “job creator.”

3 Responses

question: When they drain company who gets money, and who get short end of stick. Eckerd Drug was bought by Penny’s they drained it and sold it at scarifice prices. K-Mart and Sears will give large bonuses to executives, (like K_mart did in 90′s) and then bankrupt the corporation. It’s been standard procedure with many companies. Same with Zayre Discount stores, sold to another discount unit whom went belly up three times, and giving massive bonuses to executives. It’s called those making rules get gold, and if you’re a executive in a major company, you get the money.